Floor & Decor Holdings, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Floor & Decor is a multi-channel specialty retailer and commercial flooring distributor operating one reportable segment. As of March 31, 2022, it operated 166 warehouse-format stores, five design studios, four distribution centers and an e-commerce site. The quarter comprised 13 weeks ended March 31, 2022; comparisons are with the 13 weeks ended April 1, 2021. Dollar figures below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,028.7 | $782.5 | +31.5% |
| Gross profit / margin | $408.1 / 39.7% | $336.9 / 43.1% | Margin down 340 bps |
| Operating income / margin | $94.0 / 9.1% | $95.9 / 12.3% | Income down 2.1% |
| Net income / diluted EPS | $71.0 / $0.66 | $75.8 / $0.71 | Net income down 6.4% |
| Adjusted EBITDA / margin | $135.8 / 13.2% | $127.1 / 16.2% | EBITDA up; margin down |
| Cash from operations | $(3.3) | $101.0 | Decrease primarily from inventory and working capital |
| Capital expenditures | $100.9 | $45.9 | Higher store, distribution center and remodel investment |
Comparable-store sales rose 14.3%, driven by a 16.7% increase in average ticket, partly offset by a 2.1% decline in customer transactions. Sales growth also reflected new locations and Spartan acquisition revenue. Selling and store operating costs were 24.3% of sales in both periods; general and administrative costs declined to 5.3% from 5.6% of sales.
Cash and cash equivalents were $31.8 at quarter-end, down from $139.4 at fiscal year-end. Inventory increased to $1,149.5 from $1,008.2. Term-loan principal was $205.6; no ABL borrowings were outstanding. ABL net availability was $377.6, and reported unrestricted liquidity was $409.4. Lease liabilities totaled approximately $1,261.6. The company reported compliance with material credit covenants.
Material changes versus the prior comparable period
- Sales grew 31.5%, while comparable-store sales growth moderated to 14.3% from 31.1% in Q1 2021. Ticket growth was stronger, but transactions declined.
- Gross margin fell 340 basis points, primarily because of higher supply-chain costs. Operating income and net income declined despite higher sales.
- Operating cash flow swung from $101.0 provided to $3.3 used, principally reflecting inventory investment and other working-capital movements.
- Capital expenditures more than doubled to $100.9 as the company expanded stores and invested in its Houston distribution-center relocation, remodels and infrastructure.
Outlook, risks, contingencies and unusual items
- No earnings or comparable-sales guidance is provided in the supplied filing text. Management expected cash from operations, cash on hand and credit availability to cover requirements for the next 12 months and foreseeable future.
- Fiscal 2022 capital expenditures were planned at approximately $550–$590, including $405–$430 for store openings, relocations and construction; $100–$110 for remodels and distribution centers; and $45–$50 for technology and support initiatives. The plan included 32 warehouse-format store openings and four design studios.
- Management cited inflation, supply-chain congestion, labor constraints and higher transportation and merchandise costs. It said some cost increases could be passed on to customers, but the extent and duration of disruptions were uncertain. Other risks include weaker consumer or housing demand, rising interest rates, COVID-19 impacts, tariffs, foreign sourcing and geopolitical instability, including the conflict in Ukraine.
- Variable-rate term debt was $205.6. Management estimated a 1 percentage-point rate increase would add approximately $2.0 of interest expense over 12 months; interest-rate caps may partially offset increases above the contract cap.
- The company expected to recover $22.1 of tariff refunds, including interest; $14.7 had been received by March 31, 2022. Recovery remains subject to U.S. Customs approval.
- A wrongful-death/product-liability case in Texas and a putative derivative lawsuit remain pending. The company denied the allegations and said it could not reasonably estimate possible losses; insurance may apply subject to limits and terms.
- Adjusted EBITDA is a non-GAAP measure. The company’s reconciliation includes stock compensation, Houston relocation costs and contingent earn-out fair-value adjustments; it should not be treated as a substitute for GAAP results or cash flow.
Important facts for investors to verify
- Whether comparable-store sales and ticket growth can persist if customer transactions remain weak.
- Whether gross margin stabilizes as supply-chain, freight and merchandise costs evolve, and how much cost can be passed through to customers.
- Whether inventory growth converts to sales and operating cash flow, especially alongside the planned capital-spending and store-opening program.
- Progress and timing of the expected tariff refunds, including the amount still outstanding.
- Developments in the disclosed litigation and any changes to the company’s assessment of potential exposure.